When one reads about these working conditions — 12-16 hour shifts, pay of ~$1 per hour or less, dormitories with 15 beds in 12x12 rooms — the obvious assumption is that it's all about money:
Greedy manufacturers want to make bigger profits, so they make their products in places with labor practices that would be illegal in America.
And money is certainly part of it.
But an amazing new article by Charles Duhigg and Keith Bradsher of the New York Times reveals that there's a lot more to it than that.
The article illustrates just how big a challenge the U.S. faces in trying stop the "hollowing out" process that has sent middle-class jobs overseas — and, with it, the extreme inequality that has developed in recent years.
The reason Apple makes iPhones and iPads in China, the article shows, is not just about money.
Manufacturing an iPhone in the United States would cost about $65 more than manufacturing it in China, where it costs an estimated $8. This additional $65 would dent the profit Apple makes on each iPhone, but it wouldn't eliminate it. (The iPhone average selling price is about $600, and Apple's average gross margin is about 40%. So Apple's gross profit on each iPhone is probably in the neighborhood of $250.)
The real reasons Apple makes iPhones in China, therefore, are as follows:
- Most of the components of iPhones and iPads — the supply chain — are now manufactured in China, so assembling the phones half-a-world away would create huge logistical challenges. It would also reduce flexibility — the ability to switch easily from one component supplier or manufacturer to another.
- China's factories are now far bigger and more nimble than those in the United States. They can hire (and fire) tens of thousands of workers practically overnight. Because so many of the workers live on-site, they can also press them into service at a moment's notice. And they can change production practices and speeds extremely rapidly.
- China now has a far bigger supply of appropriately-qualified engineers than the U.S. does — folks with the technical skills necessary to build complex gadgets but not so credentialed that they cost too much.
- And, lastly, China's workforce is much hungrier and more frugal than many of their counterparts in the United States.
On this last point, Duhigg and Bradsher tell the story of Eric Saragoza, an engineer who began working in an Apple factory near Sacramento in 1995. The plant made Macs, and for a few years, Saragoza did well, earning $50,000 a year, getting married and having kids, and buying a house with a pool.
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